Lawyer’s Advocacy in Arbitrations: No. 6 of the Top 10 Horrible, Terrible, No Good Mistakes Lawyers Make: Not Treating Your Arbitrator Like SantaDavid K. Taylor, Bradley Arant Boult Cummings, Nashville, TN
dtaylor@bradley.com
615-252-2396

This post is a continuation of the Top 10 most horrible, terrible, no good, “bang your head against the door” mistakes that I have seen lawyers make before, during, and after arbitrations in which I served as the arbitrator. As stated in the previous posts, there are pros and cons to binding arbitration versus trial in a court that go beyond a series of blog posts. In many instances, representing a party in an arbitration requires more due diligence and work than a trial. Great “arbitration” lawyering is essential, but many times does not happen.

No. 6: Not Treating Your Arbitrator Like Santa

It is the time of the year for ALL good lawyers to clean up their act because Santa is coming. This same type of thought that goes into “being good” should factor into how you treat the arbitrator who will issue an award that either results in coal or a lip-smacking candy cane being placed in your law firm stocking hung snugly by your desk. Should Santa’s cookies and milk be put on the mantle near the fireplace for easy access (or maybe for a hungry elf) or out of his immediate reach? Of course not, says Rudolf the partner. A serious mistake I see, while both acting as an arbitrator or counsel, is when lawyers do not treat the arbitrator like a judge and do not think through how they can make things “easier” for the arbitrator. All those nuances we were taught as young “trial lawyers,” by our mentors, on treating judges with kid snow mittens, for some reason, go out of the decorated and frosted office window in an arbitration.

On the front end of an arbitration, try to find out from colleagues how the arbitrator likes to handle pre-hearing conferences and plan accordingly. Can you get your hands on a scheduling order previously issues by the arbitrator, revise it, and present it prior to the conference in a nicely wrapped package? On discovery disputes, arbitrators hate those as much (or even more) than judges (like Santa hates narrow chimneys). Go out of your way, just like you do in court, to resolve such disputes in good faith before taking them to the arbitrator. Do NOT think that somehow presenting a discovery dispute months before the hearing will somehow “educate” the arbitrator; it will not. Most arbitrators go into a hearing with a clean slate and base decisions on what’s presented, just like even bad girls and boys start out on the nice list with Santa on December 26th of each year.

Prior to the hearing, work with the other side as much as possible to put together a joint set of exhibit books that can be used by counsel, all witnesses, and the arbitrator so everyone has the same caroler song sheet. Bates or number the pages of exhibits that have multiple pages for easy reference. Needless time is wasted when lawyers have to say “well, this picture of the failed retaining wall near Santa’s workshop is about three-fourths of the way” in a 100-page exhibit full of pictures. Arbitrators also hate it when both sides come in with their own set of exhibit books when 80% of the exhibits in both sets are exactly the same. Along that same vein, create multiple volumes. Don’t use 12-inch-deep volumes with scores of exhibits that are hard to open and close. Again, Santa likes to have his milk and cookies close by and easy to access with no fuss. Would you wrap up his cookies in hard to open bags? Mrs. Claus would say no.

Before the hearings close, think about how to best make the arbitrator’s post-hearing analysis easier. Santa does not want to read through a long letter about what all went wrong with you in 2020. He wants to know what’s on your award “wish list” to be left under the “award tree,” which is hopefully decorated with paid client 2020 invoices. What the arbitrator wants is a short and concise summary of what relief you are seeking. Propose to submit a damages or key issue summary with a list of the exhibits that support your positions and claims. If legal fees are being considered, ask what process works best for the arbitrator. While most arbitrators do not need or want extensive post-hearing briefs, there may be one or two issues upon which the arbitrator may want a short and concise brief. And you can provide that additional, steaming cup of “hot claim chocolate” when your Santa sits down before ascending into the air to decide how he has to make someone happy and someone sad.

What you and your client do not want is to — as the Grammy winning song goes — “get run over by a reindeer” in any final award. All these holiday nuggets of wisdom cannot change your facts or make your witnesses more credible. But, you don’t want to mess around with Santa or give your arbitrator a reason to hesitate when she opens up and reaches into her big red “award bag” and provides you with an award treat that will hopefully be delicious and go down easy with you and your client.

Even Santa can’t wait for 2020 to be over. Everyone have a great and safe 2021!

Read numbers 1, 2, 3, 4, and 5 on the list.

Contractor Loses Effort to Bind Remote Home Purchaser to Arbitration ClauseOn December 8, 2020, in Taylor Morrison of Texas, Inc. v. Kohlmeyer, a Texas Court of Appeals rejected a contractor’s appeal of a trial court order denying the contractor’s motion to compel arbitration in a home construction defect dispute. The appellate court concluded that the theories of direct benefits estoppel and implied assumptions did not permit the contractor to bind a subsequent purchaser to mandatory arbitration required under the original purchase agreement.

In 2013, the contractor, Taylor Morrison, executed a purchase agreement with a homeowner for the construction of a new home in League City, Texas. The purchase agreement included a mandatory arbitration provision and provided that it may not be assigned without the prior written consent of Taylor Morrison. In March 2016, the homeowner sold the house, and, later that year, the property was sold again to the Kohlmeyers. In 2018, the Kohlmeyers sued Taylor Morrison “asserting that the house had a substantial amount of mold growth throughout resulting from numerous water and moisture sources caused by construction defects.” Taylor Morrison moved to compel arbitration under the doctrines of equitable or direct benefits estoppel and implied assumption, but the trial court denied the motion. Taylor Morrison then appealed.

The appellate court confirmed the trial court’s decision. The appellate court acknowledged that an arbitration agreement may bind a non-signatory such as the Kohlmeyers but only when one of the following six theories — none of which were applicable here — applies: “(1) incorporation by reference, (2) assumption, (3) agency, (4) alter ego, (5) equitable estoppel, and (6) third-party beneficiary.” Taylor Morrison only argued assumption and equitable estoppel applied in the instant action.

With respect to estoppel, Taylor Morrison contended that the Kohlmeyers’ claim sought a direct benefit of the original purchase agreement relating to the quality of workmanship and construction. According to the court, for Taylor Morrison’s direct benefits estoppel theory to apply, Taylor Morrison must show that the Kohlmeyers’ claims depended on and were unable to stand independently of the purchase agreement. Mere relation of the claims to the purchase agreement was insufficient to apply the estoppel theory to bind the Kohlmeyers to arbitration. The appellate court concluded that the Kohlmeyers’ claims did not arise solely from the purchase agreement because the Kohlmeyers did not allege breach of the purchase agreement, the economic loss doctrine could not be applied to bind the Kohlmeyers on a contract they never signed, and the Kohlmeyers’ claims for breach of implied warranties did not arise solely from the purchase agreement.

The appellate court also rejected Taylor Morrison’s argument for binding the Kohlmeyers to the arbitration clause under the theory of implied assumption because the purchase agreement had not been assigned to the Kohlmeyers. According to the court, an implied assumption of contract obligations arises when a contract is assigned to an assignee (here, the Kohlmeyers) and the benefit received by the assignee is so entwined with the burden imposed by the assignor’s contract that the assignee is estopped from denying assumption and the assignee would otherwise be unjustly enriched. Taylor Morrison argued the implied warranties in the purchase agreement had been automatically assigned to the Kohlmeyers when they bought the house and that the benefits of the implied warranties under the purchase agreement were entwined with the arbitration provision.

The court disagreed. Per the court, the alleged automatic assignment of the implied warranties was inapposite because there was no dispute that the purchase agreement (i.e., the contract) had not been assigned to the Kohlmeyers. Indeed, the appellate court noted that assignment of the purchase agreement was contingent on Taylor Morrison’s written consent, which the record showed had not been provided. Therefore, the court rejected the implied assumption theory and held that the Kohlmeyers could not be compelled to arbitrate.

Lessons from Taylor Morrison

Since arbitration is typically an animal of contract, it is important for contractors to understand how their arbitration clauses will be interpreted by a court. While attempts to compel arbitration of non-signatories to an agreement may invite some creative application of the applicable theories described above, a belt-and-suspenders approach in drafting a dispute resolution clause may provide more options to the party attempting to compel arbitration. Here, the appellate court appeared wary of applying a purchase agreement’s arbitration provision to a homeowner who was two-times removed from the original purchase agreement transaction. However, the court noted that three of the potential theories to enforce the arbitration clause were inapplicable based on how the agreement was structured.

If you have any questions about compelling arbitration of non-signatories, please do not hesitate to contact Jon Paul Hoelscher or Aman Kahlon.

Enhanced Debriefing End Date Still Unresolved: DOJ Seeks to Overturn NIKA Technologies A few months ago, we wrote about how the U.S. Court of Federal Claims (COFC) had defined when the protest clock starts running for a stay of contract performance pending a bid protest if the Department of  Defense’s (DOD) enhanced post-award debriefing procedures are used. The case was NIKA Technologies, Inc. v. United States, and the issue involved when NIKA’s debriefing ended. The COFC ruled for NIKA, but the United States has now appealed to the U.S. Court of Appeals for the Federal Circuit. NIKA is not participating in the appeal, leaving the Department of Justice (DOJ) to go it alone. On December 9, 2020, the Federal Circuit heard an oral argument.

Background

A disappointed offeror protesting to the Government Accountability Office (GAO) can obtain a stay of contract performance pending a protest as long it files the protest by the later of “10 days after the date of the contract award,” or “the date that is 5 days after the debriefing date offered to an unsuccessful offeror for any debriefing that is requested and, when requested, is required” (31 U.S.C. § 3553).

In 2018, Congress made changes to the debriefing rules in Section 818 of the FY-2018 National Defense Authorization Act (NDAA). Section 818 created an exception to the deadline to file a protest after a required debriefing by allowing “a disappointed offeror to submit, within two business days…, additional questions related to the debriefing,” which a military agency must answer within five business days (10 U.S.C. § 2305). Thus, for DOD procurements now, the five-day post-debriefing period for filing a protest and obtaining a stay of performance runs from the date the government responds to a disappointed offeror’s questions.

In February 2020, NIKA was not selected for a U.S. Army Corps of Engineers (USACE) multiple-award IDIQ contract. NIKA requested a debriefing, which it received in writing on a Wednesday. The debriefing told NIKA that it had two business days to submit follow-up questions and that the debriefing would be considered “closed if additional questions are not received within (2) business days,” i.e., on Friday. On Saturday, NIKA told the USACE that it had no more questions.

NIKA filed a GAO bid protest on the following Tuesday, six days after receiving the written debriefing but four days after it could have submitted follow-up questions but chose not to. The USACE did not stay contract performance, stating that NIKA filed the protest outside the five-day window. NIKA took the contract stay dispute to the COFC while the GAO protest continued separately.

At the COFC, the government argued that, because NIKA submitted no follow-up questions, the debriefing closed on Wednesday when the USACE gave the written debriefing. Thus, any protest had to be filed within five days of that date, i.e., the following Monday. The COFC disagreed, holding that the debriefing date was “the last day of NIKA’s debriefing process,” the Friday NIKA could have submitted follow-up questions, not the Wednesday that NIKA received the written debriefing. The COFC stated that the statute plainly included two business days to submit additional questions, and the USACE’s own interpretation, according to its written debriefing, was that the debriefing had not closed the day the debriefing was written. The COFC enjoined the USACE from issuing any task orders pending the resolution of the GAO protest.

On June 5, 2020, the GAO denied NIKA’s protest. On June 25, 2020, DOJ filed a notice of appeal of the COFC decision on the contract stay issue. NIKA is not participating in the appeal.

What has happened so far in the appeal?

On December 9, Chief Circuit Judge Prost, Judge Lourie, and Judge Hughes heard the government’s oral argument. DOJ frames the question as one of statutory interpretation, which it contends the COFC got wrong by extending the debriefing by two days to accommodate follow-up questions that never came. DOJ argues that, because NIKA asked no follow-up debriefing questions, the DOD’s enhanced debriefing procedures, which track the amended statutory language, did not apply, so the debriefing date was not extended beyond the date NIKA received the written debriefing. Thus, to get a stay of performance, NIKA should have been required to file its GAO protest within five days of the date of the written debriefing, not within five days of the date by which it could have asked questions but did not. All three judges on the panel asked about the USACE’s statement in the written debriefing that apparently kept the debriefing open for at least two days to allow follow-up questions, with Chief Judge Prost asking whether it was not at least ambiguous. DOJ responded that the argument about the contents of the letter was raised and abandoned at the COFC and that the statute governed in the event of any confusion.

In addition, in its appellate brief, DOJ had identified a potential mootness issue because the COFC injunction is no longer in effect and the GAO protest is over but contended that because the legal issue is capable of repetition and likely to evade review, it was not moot.

What is the takeaway?

It is possible that the Federal Circuit determines that the case is moot. The Federal Circuit could also conclude that the language in the USACE’s debriefing letter, rather than the statute, was dispositive about the date of the closing of the debriefing and that any holding on the appeal is limited to the facts of this case. Absent of those scenarios, the case is likely to provide some certainty one way or the other regarding when a DOD enhanced debriefing closes if the disappointed offer does not ask any follow-up questions after a required debriefing. Of course, because DOJ argued on its own, no one posed the obvious hypothetical. If the Federal Circuit agrees with the government’s position, isn’t the way out of the problem for a prospective protester who wants more time to simply ask a question — any question — within the two-day follow-up period just to force the agency to answer it and, thus, run the clock some more?

Bradley will continue to monitor this case and provide further updates as appropriate. If you have any questions about this article, please feel free to contact Patrick Quigley or Aron Beezley.